Trade war, bearish demand outlook weigh on oil prices

Oil prices have has dropped about $10 this month as the trade war started by US President Donald Trump stoked fears of a global recession that would hurt energy demand, especially in the US and China, the biggest crude consumers.

Concerns about the impact of a tit-for-tat trade war on global growth and demand for oil sent Brent crude prices plummeting by more than 20% within a week to a four-year low after Trump announced his sweeping tariffs on April 2.

Concerns around the growth outlook have led agencies to cut demand views and analysts to slash price forecasts, with the possibility of a glut amplified by Opec+’s surprise decision to bring back output more quickly than expected.

The International Energy Agency (IEA) yesterday slashed forecasts for global oil demand this year, while Opec on Monday lowered its outlook, expecting demand to grow by 1.3mn bpd in 2025, down from a previous forecast of 1.4mn bpd.

The Organisation of the Petroleum Exporting Countries (Opec) now sees global demand reaching at total 105.05mn bpd this year. It also slightly lowered its global economic growth forecast to 3%.

Meanwhile, the IEA chopped projections for 2025 demand growth by a hefty 300,000 bpd — or almost a third — to 730,000 bpd. Half of the reduction was concentrated in the US and China, which are engaged in a full-blown trade war.

The plunge in oil prices following the twin shocks of Trump’s tariffs and the surprise boost in production from Opec+ has altered the global energy landscape with stunning speed.

Already the oil market is tossing aside expectations for 2025.

Goldman Sachs Group, one of Wall Street’s long-standing crude bulls, cut its year-end price forecast last Thursday for Brent crude by $5, to $66 a barrel.

Enverus has slashed more than a third from its demand-growth model. UBS Group, which at the start of the year forecast global demand would grow by 1.1mn bpd, is now cutting that up to nearly 50%.

In Europe, the plunge in prices is welcome news. The tariffs sent gas there plunging to a six-month low on expectations that trade wars could cripple global energy demand and ease the market’s recent tightness.

Those lower prices bring a relief to a region struggling to stockpile enough gas for next winter. If China’s economy slows, Europe is less likely to face competition to buy liquefied natural gas cargoes from the US and elsewhere.

But many of Opec+ members require high oil prices to cover government spending.

Saudi Arabia, for instance, needs oil above $90 a barrel, according to the International Monetary Fund. Iraq also needs prices above $90 a barrel, while Kazakhstan needs more than $115, the IMF estimates.

Back in the US, lower oil prices have led shale investors to settle in to a harsh, new reality.

Crude hit a four-year low this month as the trade war — especially the confrontation between the US and China — stoked fears of a global recession that would hurt energy demand. A surprise Opec+ decision to bring back shuttered output more quickly than expected has added to bearishness.

In a wider sense, oil’s see-saw trajectory is a double-edged sword.

Major oil producing countries will lose money regardless of the market share they enjoy. The Gulf countries produce oil at the lowest cost; but due to high government spending, they need higher prices to balance their budgets.

But big importing nations such as China, India and Germany could get some relief from falling energy bills.

But cheap oil can cut investments to develop new oil and gas fields.

The world is in need of a stable oil market with price equilibrium.